Washington state slams T-Mobile for “deceptive ‘No-Contract’” ads

T-Mobile will alter its ads, pay the Evergreen State over $26,000.

Last month, T-Mobile finally made a highly anticipated announcement—that it would kill off the mobile phone contract, dubbing itself the “Un-Carrier.”

As we reported at the time, customers can bring their own device or pay an additional fee to buy a new phone—essentially shifting the carrier subsidy entirely to the consumer. For example, a new Samsung Galaxy S III requires a purchase price of $110 (but retails for $550) with an additional $16 fee for two years.

On a month-to-month contract, if a customer wanted to switch carriers before the two years, he or she would have to either buy out the remainder of the contract or return the phone—as stated in T-Mobile’s company policy. But the Washington state attorney general didn’t take too kindly to T-Mobile’s advertisements that tout the “no contract” aspect of the carrier.

According to a new court order signed Thursday by the State Attorney General’s office and T-Mobile, customers who entered contracts between March 26 and April 25 may now obtain a full refund for equipment and cancel plans without being required to pay the remaining balance on the hardware.

Notably, T-Mobile will also be required to state in all advertisements the true cost of handset purchase, including the requirement that the customer maintain a two-year agreement while paying off a financing plan. In addition, T-Mobile will pay over $26,000 to the State Attorney General's office in reimbursement of legal fees, according to the Seattle Times.

“As Attorney General, my job is to defend consumers, ensure truth in advertising, and make sure all businesses are playing by the rules,” Bob Ferguson, Washington’s attorney general said in a statement on Thursday. “My office identified that T-Mobile was failing to adequately disclose a critical component of their new plan to consumers, and we acted quickly to stop this practice and protect consumers across the country from harm.”

Promoted Comments

This is pathetic. This is exactly why T-Mobile is going to have trouble selling this idea to consumers, because of dumb shit like this. The state is trying to protect the person that goes in, "buys" a phone for 40 bucks, thinks, great, no contract!, and then expects to cancel the service a month later without any further payment. Even though T-Mobile's contract-free plans + monthly financing will work out cheaper than Verizon/AT&T for most, the average consumer will just see this $550 phone price they're forced to put on the ad and say no way.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

121 Reader Comments

This is pathetic. This is exactly why T-Mobile is going to have trouble selling this idea to consumers, because of dumb shit like this. The state is trying to protect the person that goes in, "buys" a phone for 40 bucks, thinks, great, no contract!, and then expects to cancel the service a month later without any further payment. Even though T-Mobile's contract-free plans + monthly financing will work out cheaper than Verizon/AT&T for most, the average consumer will just see this $550 phone price they're forced to put on the ad and say no way.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

I can see the issue with having to show the full price of the phone. None of the other carriers have to do that and while in the case of Tmobile it may make sense from a legal standpoint since you are actually paying for the phone in the plan it now takes something that is truly an advantage and turns it into something that scares away potential customers....What do you mean $570 I can get it for $200 at AT&T and the same unlocked phone for $650. On the other hand you are walking into a 2 year financing program so I do believe that the sale needs to be transparent in regards to the full cost.

I agree with atfp that this is completely ridiculous. Yes financing is technically a contract but they are referring to the mobile contract. If you don't understand that $600 phones are not $200 then you really have no business signing your name on anything. Anyway I will be switching to TMobile as soon as my VZW contract expires in January.

Or we could look at it from the other perspective, and say that Washington State did no go far enough. AT&T, Verizon, and Sprint should be required to include the ETF in the advertised price of the phone. The all-in price should be in a larger font than the upfront price.

Does this mean that people can run out today and buy a phone at the fully reduced price, and then cancel the plan and never have to return the phone while also never owing the difference between what they paid and the full price?

Don't downvote me... I'm honestly curious if the Washington AG provided an opportunity for unscrupulous people to take advantage of this (the ruling effects people who sign up with T-Mobile through 04/25/13 - TODAY).

So it seems like if T-mobile let the customer continue to pay monthly payments for their device regardless of whether or not they continue service with T-mobile, they would have been ok.

Why isn't it like this anyway? Ok, so you have to worry about customers abusing the zero/low-interest financing a little but so do all of those 0% financing for X month credit cards you see out there.

Those credit cards LOSE money during that period so they can make even more back later charging you 20 to 30% interest. If you left T-Mobile they no longer have an opportunity to make ANY money off you and at no point would they be making 20 - 30% off the money they loaned you in the first place.

The article was extremely confusing until I got to the fifth paragraph that mentions a financing plan for the phones. I take it the "fee" is really just payments on the phone loan? I take it people were taking out these loans without realizing it? That seems kind of hard to imagine... loans typically involve rather a lot of disclosure paperwork that should have clued them in.

But this has nothing to do with contracts, right? It wasn't that they said they were no-contract but actually are... really their mistake was to have loans in the first place, or rather to try to make the down payment look like the actual price.

This is pathetic. This is exactly why T-Mobile is going to have trouble selling this idea to consumers, because of dumb shit like this. The state is trying to protect the person that goes in, "buys" a phone for 40 bucks, thinks, great, no contract!, and then expects to cancel the service a month later without any further payment. Even though T-Mobile's contract-free plans + monthly financing will work out cheaper than Verizon/AT&T for most, the average consumer will just see this $550 phone price they're forced to put on the ad and say no way.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

Exactly, I expect a blizzard of ads from the other three, AT&T ad: 3 skinny jeans lumberjacks standing around instagramming each other: "You paid how much for your iPhone?" Cue laughter and tagline "AT&T, because fuck you, that's why."

Even though simple math proves T-Mobile is the cheapest period. They'll be trumpeting all the "Free" phones you get with their "Premium" service. It'll tap right into the American Brain where cost=worth, but only in small(ish) monthly amounts. I got on the BYOD plan 2 years ago and immediately had the cheapest plan with the most benefits of anyone I knew on the other carriers. And now, it's even cheaper.

The second point really needs to be advertised more. You can pay whatever you want towards your phone. I initially paid the $99 down, but just yesterday paid the balance off because I hate debt. I really hope T-Mobile survives and this kind of thing catches on, it'll just drive device prices down across the board.

Is Bob Ferguson up for re-election or something? That's the only way this makes any sense to me.

Granted, I do realize that most people REALLY DO think their Galaxy S III or iPhone 5 actually only costs $99 or $199 or whatever silly number they saw when they signed their contract but seriously, Bob. You're not actually helping here.

"After an investigation of the company’s practices, the Attorney General’s Office learned that the company failed to adequately disclose that customers who purchase a phone using the 24-month payment plan must carry a wireless service agreement with T-Mobile for the entire 24 months— or pay the full balance owed on phone if they cancel earlier. "

T-Mobile's advertisements and press releases, to me, made it seem like people would be able to continue making monthly payments on a phone bought through T-Mobs even service was terminated early. Makes some sense that this isn't the case - T-Mobs wouldn't want to finance phones at 0% interest unless they were getting *something*. But it's not clear from the advertisements IMO that the balance on the phone would be owed at the time the contract is cancelled.

T-Mobile's advertisements and press releases, to me, made it seem like people would be able to continue making monthly payments on a phone bought through T-Mobs even service was terminated early. Makes some sense that this isn't the case - T-Mobs wouldn't want to finance phones at 0% interest unless they were getting *something*. But it's not clear from the advertisements IMO that the balance on the phone would be owed at the time the contract is cancelled.

They are financing at 0%. If you look at the phones for sale on their website, it lists the down and monthly payments, or the one-time fee, and the math adds up in both cases. And it's spelled out in print right below the "Add to cart" button:

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

This is pathetic. This is exactly why T-Mobile is going to have trouble selling this idea to consumers, because of dumb shit like this. The state is trying to protect the person that goes in, "buys" a phone for 40 bucks, thinks, great, no contract!, and then expects to cancel the service a month later without any further payment. Even though T-Mobile's contract-free plans + monthly financing will work out cheaper than Verizon/AT&T for most, the average consumer will just see this $550 phone price they're forced to put on the ad and say no way.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

Yeah, it totally sucks when corporations need to break contracts down so any and all can understand!

I mean: why should T-Mobile need to change their nomenclature to" buy a phone with monthly financing " when you clearly show its what you believe is necessary for Ars readers to understand what you propose is common sense ?!?

IOW: you negate your point when you show your need (regardless the legitimacy ) to break it down for us...

As much as I hate to say this (I switched to T-Mobile and loving it), from a strictly legal pedantic view, the AG has a point; but s/he need not take it as far as it is being taken. T-Mobile has the cellular plan (no contract) and the financing plan. These are tied together and therefore will be on T-Mobile while fulfilling your obligation on the financing plan.

They are choosing to overlook the fact that when you are done paying for the device (or bring your own device) you will be paying less per month; while on the other providers you will pay exactly the same. I guess it is up to T-Mobile's marketing team to figure out how to explain this in simpler terms to the mass populace.

Edit: Also I 100% agree with talzara

Quote:

AT&T, Verizon, and Sprint should be required to include the ETF in the advertised price of the phone. The all-in price should be in a larger font than the upfront price.

Was completely clear to me. I've met people from Washington - they aren't this dense. Something stinks.

Having lived in Washington state all my life, I can say with certainty that the large majority of people in this state are not *this* dense. Our legislature is unfortunately incredibly overzealous at protecting consumers from imagined slights, and turning a blind eye to the mounting deficit and infrastructure issues.

It's pretty simple, entering into an agreement where you have obligations to pay monthly fees and obligations to pay off a balance if you cancel service over a defined period is a contract. You can't advertise that as a no contract plan. Shocking.

It's pretty simple, entering into an agreement where you have obligations to pay monthly fees and obligations to pay off a balance if you cancel service over a defined period is a contract. You can't advertise that as a no contract plan. Shocking.

You have:A) a phone that you are financing.

B) a service plan that you can exit at any time without any cancellation fee.

C) a stipulation in your financing agreement that you will have fully paid off your financed phone before you cancel or upon cancellation of your service plan.

We all understand cell phone contracts to be "Stay with our company for x period of time, or pay the cancellation fee",

So you're right, it is simple, but you're wrong, it's not a cell phone contract.

It's pretty simple, entering into an agreement where you have obligations to pay monthly fees and obligations to pay off a balance if you cancel service over a defined period is a contract. You can't advertise that as a no contract plan. Shocking.

You have:A) a phone that you are financing.

B) a service plan that you can exit at any time without any cancellation fee.

C) a stipulation in your financing agreement that you will have fully paid off your financed phone before you cancel or upon cancellation of your service plan.

We all understand cell phone contracts to be "Stay with our company for x period of time, or pay the cancellation fee",

So you're right, it is simple, but you're wrong, it's not a cell phone contract.

Shocking.

NounA written or spoken agreement, esp. one concerning employment, sales, or tenancy, that is intended to be enforceable by law.

As a long time t-mobile subscriber (8 years), I can say T-mobile is a little less than honest about this new plan. First of all, you can still get contract phone pricing if you want. Just go to Wirefly, Best Buy, or Target. However, all will force you to drop your grandfathered plan for a new one.

The exception is Costco Wireless. There you can get a discounted phone price and not lose your grandfathered plan. To get what I have at $55 a month would cost me $70 under the new T-mobile plan, and I would have to pay the full price of the phone. For the phone I want, it will be $200 cheaper using Costco Wireless.

The guy at the T-mobile store sort of "forgot" to tell me this. OK, he lied. He said any subsidized phone will require breaking my old contract. Not true.

There is a very interesting thing going on in the comments. Lots of people - and to be clear, I'm one of them - think the concept is a great thing. You pay the real cost of your phone, you pay less per month and less over the average 24 month window (by a lot if you go that long), and yay, win!

But that has nothing to do with the fact that you are entering into a contact - no matter how nice it is to you, it is still a contract - unless you pay the full price at once up front before you walk out the door. They advertised "no contract." They did not advertise "no contract in some cases but in most cases in real life there will be a contract until you pay off the phone because the vast majority of consumers have no idea what the actual cost of their 'free' smartphone is" which is the reality of the situation. And blaming the consumer for being led down the path that all four major carriers and most of the minor post-paid carriers led them down is silly. How is the average consumer supposed to know what the actual cost of an iPhone is? How would the average consumer - which the Ars readership does not represent - know? Especially when they can go to Best Buy and buy an off-contact $99 Android phone easy-peasy. Guess what that sets the price of a smartphone at in their minds?

Those two items are not mutually exclusive. You can like and respect the offering, while still calling them on the incorrect advertising. As far as "but what about the $40 no contract guy!!" sort of thing, well, that's exactly what the advertising says is possible, because it says no contract.

And any argument that boils down to "just stupid big brother government getting in the way" is a bankrupt argument because it avoids the actual facts of the situation to make a political point.

I will very likely get down-voted for this, given the editor-promoted, high-voted comment. It doesn't matter, though, because ultimately the facts are what they are, whether voting indicates it or not.

It's pretty simple, entering into an agreement where you have obligations to pay monthly fees and obligations to pay off a balance if you cancel service over a defined period is a contract. You can't advertise that as a no contract plan. Shocking.

You have:A) a phone that you are financing.

B) a service plan that you can exit at any time without any cancellation fee.

C) a stipulation in your financing agreement that you will have fully paid off your financed phone before you cancel or upon cancellation of your service plan.

We all understand cell phone contracts to be "Stay with our company for x period of time, or pay the cancellation fee",

So you're right, it is simple, but you're wrong, it's not a cell phone contract.

Shocking.

NounA written or spoken agreement, esp. one concerning employment, sales, or tenancy, that is intended to be enforceable by law.

Sounds like a contact to me...

Don't be pedantic. We all know what a cellphone company's contract is, and it's not what T-Mobile is doing.

I think they're perfectly valid in calling it "no contract". If they wanted to get technical, they could send you two bills. One for your phone payment, for which you are in a contract, and one for your service, for which you aren't. They would simply have to rewrite the phone payment contract slightly such that it referred to your service as a separate thing. Then, if people really wanted to run down pedant road, they could be forced to change their "no contract" advertising to saying "no service contract".

This is pathetic. This is exactly why T-Mobile is going to have trouble selling this idea to consumers, because of dumb shit like this. The state is trying to protect the person that goes in, "buys" a phone for 40 bucks, thinks, great, no contract!, and then expects to cancel the service a month later without any further payment. Even though T-Mobile's contract-free plans + monthly financing will work out cheaper than Verizon/AT&T for most, the average consumer will just see this $550 phone price they're forced to put on the ad and say no way.

Edit: And what's the business with "the customer maintain a two-year agreement while paying off a financing plan"? That's not true. You can pay the phone off at whatever pace you want. There is no agreement above and beyond that.

Stockholm syndrome much? Yes, it's cheaper. But to say there's no contract is fallacy. They advertise a phone for 100 bucks. If you choose the phone at that price *you must enter a contract*.

I'm appalled at the responses, such as your own, which all bemoan the "Attack on T-mobile". We should be cheering the enforcement of truth in advertising laws.

Instead of complaining about this enforcement because it's T-mobile is finally offering something that very nearly isn't fraudulent, we should be eviscerating the Washington state regulators for going after T-mobile for this silly thing while ignoring the fact that every phone company in the country advertises "Unlimited" data plans.And various other egregious examples of customer abuse so prevalent in telecom.

This is kinda silly. Yes, technically, there's a contract to pay for the phone, but it's not the same way there's a 2-year contract when you sign up with other carriers. You can pay the phone off the next day and then you have no obligation to stay with T-Mobile.

I'm all for using government to do the things that it's good at. However, passing judgement on the semantics of phone company adds is a huge misuse of government resources. So is deciding what apps belong in an app store (EU) or how Google should present search results (also EU). Why can't governments focus their energy on improving education, health, transportation, crime/poverty, and the overall economy instead of making mountains out of mole hills?